Nov. 16 (Bloomberg) -- Israeli shares declined in New York,
pushing the benchmark index to its biggest weekly slump since
July, as Palestinian missiles landed around Jerusalem and Tel
Aviv while the army extended its bombing of the Gaza Strip.

The Bloomberg Israel-US Equity Index of the largest New-York traded Israeli companies retreated 0.6 percent to 81.44 by
2:26 p.m. in New York, set for a 2.8 percent slump this week,
the biggest since the five days ended July 13. Allot
Communications Ltd., the developer of technology that helps
wireless carriers manage traffic, and drugmaker Protalix
BioTherapeutics Inc. led declines.

At least one rocket landed south of Jerusalem, hitting an
“open area” with no casualties or damage, the first hit on the
city since the 1967 Middle East war, according to the Foreign
Ministry. A blast was heard in Tel Aviv for a second day. About
500 rockets have been fired into Israel over the past two days
and Israeli air strikes have hit almost 500 targets in Gaza, the
army said. Prime Minister Benjamin Netanyahu is planning to call
up 75,000 reservists, according to Channel Two television.

“Investors are worried about an escalation,” Brian
Friedman, who helps manage $625 million at GHP Investment
Advisors, said by phone from Denver. “Israel has been through
this before but the unpredictable nature of the situation makes
it easy to paint a picture of more dire consequences.”

The Tel Aviv Stock Exchange is closed today and tomorrow
for the weekend.

Credit Risk

Israel’s five-year credit-default swaps rose 10 basis
points to 167 basis points, the highest level since Aug. 30, New
York prices compiled by Bloomberg show. Credit-default swaps pay
the buyer face value in exchange for the underlying securities
or the cash equivalent should a borrower fail to adhere to its
debt agreements.

The shekel rose 0.2 percent to 3.9668 per dollar. It was
the second-worst performer after the South African rand among 10
emerging-market currencies in Europe, Middle East and Africa
tracked by Bloomberg this week, weakening 1.3 percent.

Allot, based in Hod Hasharon, Israel, dropped 5.8 percent
to $19.71, an eight-month low, extending its decline for the
week to 11 percent. The retreat widened the stock’s discount to
its Israeli shares to the most in a week. Shares traded in Tel
Aviv lost 11 percent for the week to 83.44 shekels, or the
equivalent of $21.04.

‘Prolonged Conflict’

Protalix dropped 3.6 percent to $5.11 in New York, paring
its gain this week to 4.3 percent. The Israeli stock increased
7.6 percent in the last five days to $20.66, or $5.21.

Only six stocks on Bloomberg Israel-US Equity Index gained
this week.

“We need to see how this might affect the economy if there
is a prolonged conflict,” Jacob de Tusch-Lec, a money manager
at Artemis Investment Management LLP who oversees about $100
million including Israeli equities, said in a phone interview
from London. “If this turns into a long-term situation, we
could see less spending and an impact on labor and banks, and
Israel’s risk premium could creep up.”

Israel is ranked investment-grade by the three major
ratings companies, with an A1 rating from Moody’s Investors
Service, A+ from Standard & Poor’s and A from Fitch Ratings.

The nation’s economic growth is expected to slow to 3.3
percent this year from 4.6 percent in 2011, according to central
bank estimates. The outlook is still faster than the 1.3 percent
forecast for the Group of 10 industrialized countries, according
to data compiled by Bloomberg.

‘Initial Sell-Off’

In December 2008, Israeli tanks and soldiers entered Gaza
and more than 1,100 Palestinians and 12 Israelis were killed in
the subsequent fighting. The benchmark TA-25 Index gained 6.9
percent in the 22-day operation.

“The initial sell-off was an emotional reaction to rockets
being fired,” Steven Schoenfeld, founder of Bluestar Global
Investors LLC, a financial research company focused on Israel
and the Middle East, said yesterday by phone from San Francisco.
“Yet overall, markets have reacted with the knowledge that
Israel’s companies and its economy have gone through this before
and that it’s very unlikely to have anything but a very short-